Knoxville hot home sales could impact commercial real estate growth
Commercial and residential real estate enter into a symbiotic relationship. They can’t live without each other, but they don’t always get along.
Knoxville’s red-hot residential real estate market has a limited supply of homes – and that could have a significant impact on commercial real estate growth as East Tennessee becomes increasingly a destination for growing businesses.
How crazy is the Knoxville neighborhood? In April, the average time a Knoxville home was on the market dropped to just four days. This means that half of the homes sold were under contract in four days or less.
And on the residential side there is a serious supply and demand problem. Looking ahead, there were 1,736 active listings in the Knoxville area as of January 2018. In January 2021 there were 658.
The real estate world is a chicken and egg situation: the housing shortage will affect economic growth. Businesses are looking to locate here, but Knoxville has found it difficult to recruit these businesses if there are no employee housing options.
Knoxville has seen several announcements for new businesses and jobs in the past few months. Amazon plans to create more than 1,000 jobs at its Alcoa and Knoxville Center locations. Lending Solutions opens an office in West Knoxville and will eventually create 250 jobs.
With the influx of jobs and families, the housing market will not be an easy solution. In May, Pods Enterprises LLC, an industry leader in portable moving and storage solutions, released a study showing where customers have moved in the past 15 months. Knoxville was No. 3 on the national list and repeated similar reports from UHaul and United Van Lines released earlier this year.
This pattern of growth could be stifled by a lack of commercial inventory in the market.
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Each type of commercial property has its own relationship with housing. Nobody wants to build a huge warehouse or factory near their home, but a new restaurant or mall could be a nice perk. And the impact commercial property has on property prices can depend on whether it is office, retail, or industrial property.
Of the three commercial property product types, proximity to retail is most likely to be seen as a neighborhood advantage and an important factor for potential homebuyers.
A Georgia State University study found that home prices in the retail area were relatively higher after the development.
The study also showed that developers choose locations for office space near relatively more expensive neighborhoods and at times of rising values. Once the projects are completed, the neighborhoods will maintain higher sales prices.
As expected, new industrial development locations are typically in neighborhoods where values are already lower and trending downward before a warehouse arrives.
The vacancy rate in the industrial sector, including warehouses for sales and production, is at an almost record low. The office market is reaching a similar point.
Since 2008, developers in Knoxville have only built four multi-tenant office buildings, which means that supply remains extremely low. This, in turn, could limit the city’s ability to attract new businesses.
What’s next for Knoxville? How does the region move between the need for new retail, industrial and office developments and the influx of people interested in moving?
The region is expanding. Many cities envy downtown Knoxville, the growth of hotels and restaurants, the potential for a new ballpark, and unmatched outdoor opportunities.
Tennessee’s tax structure and aggressive economic development programs will continue to incentivize businesses and individuals to travel to the Smoky Mountains. Achieving a healthy balance in the coming years will require a concerted effort from both private commercial and residential developers and the support and influence of regional governments.
N. Justin Cazana, CCIM, SIOR is a co-founder of Avison Young Commercial Real Estate. The law firm specializes in the areas of commercial property management, brokerage, leasing as well as landlord and tenant representation. Avison Young manages approximately 1.8 million square feet of commercial real estate in the Knoxville area. He can be reached at [email protected].